Mario Draghi, President of the European Central Bank. – Mr President, let

me first thank Mr Fernández and his colleagues for the report. It is very

encouraging for our work that you stress how our measures have contributed

to the recovery and to financial stability.

You noted in the report that the institutional framework enshrined in the

Treaties allowed us to take decisive action in line with our price stability

mandate, and this has been the objective of our monetary policy throughout.

It still is the objective of our monetary policy. In the course of exchanges we

are often told that our monetary policy affects one category or another, but

our objective is price stability, defined as an inflation rate which is close to,

but below, 2% for the whole of the euro area, not necessarily for one specific

country. That is how our monetary policy should be judged: whether in the

medium term we reach this objective.

I would like to thank Commission Vice-President Dombrovskis, and all of

you, for this very relevant and useful debate. The debate shows that, while

we are now seeing the positive results of our policies, we should not be

complacent, but should rather strive for continued improvement.

I apologise in advance that, given the short time I have, I cannot comment

on each and every statement, but let me touch on some of the issues that you

raised.

One issue raised by several honourable Members concerns the effects that

our monetary policy has on the distribution of income and wealth. So let me

say a few words about the effects of quantitative easing (QE). It is quite

clear that QE raises asset prices. The holders of assets are generally wealthy

institutions or wealthy people, so in the short run you have a worsening of

distribution. At the same time, to the extent that QE is successful, it

increases employment – as I have said, and I am going to say it again – and

it is by far the most powerful measure for decreasing inequality in any

economic system.

From this viewpoint, even though in the short run one has some negative

consequences, in the medium and long term the positive consequences

outweigh, very consistently and significantly, any short-term negative

concerns. This has been shown, by the way, in several studies. The best way

to decrease inequality is to increase employment, and that is what we have

done, contributing to increasing employment by 7.5 million jobs over three-

and-a-half years.

When we look at wage growth – and that is very important for us because it

is, in a sense, what tells us whether inflation is moving towards our objective

in the medium term – annual growth in terms of compensation per employee

increased has gradually from 1.1% in the second quarter of 2016 to 1.7%

now. It is still below its historical average, which is 2.1%, so we have to be

more patient, but looking at what happens in other jurisdictions – for

example the United States which is, by the way, far advanced in the business

cycle – we see that wage growth picks up in the end. The recent data in the

USA show exactly this.

We have to be aware that we have weak productivity growth, ongoing

impacts of labour market reforms implemented in some countries during the

crisis and certainly a much bigger labour supply coming from stronger

migration flows and higher participation rates. Participation rates of women

and older people especially have increased considerably. Also, the low-

inflation environment that has prevailed for a long time is now influencing

current negotiations. And, by the way, one thing that is quite important in

explaining this light response by wages is that even though we had a

significant increase in employment, when we go and look at the quality of

this increase in employment we see a lot of part-time and temporary

arrangements. I am listing all these factors, because they are explanations of

why the nominal wage-growth response is going to be lower than we had

expected.

But we know by looking at other jurisdictions which had, by and large, the

same problems that, in the end, nominal wages are going to go up, and they

are going up, albeit at a subdued rate.

As regards the effects of our monetary policy, some speakers questioned the

effectiveness of this policy. We have estimated that our measures have made

a substantial impact on the economic performance of the euro area.

Considering all the measures taken between 2014 (and even before, in 2013)

and October 2017, the overall impact on EU area real GDP growth is 1.9%:

1.9 percentage points over three years.

One Member pointed out that investment is still low. We are coming from

very, very low levels of private investment but, if anything, over the past

three or four quarters, private investment has picked up and it is actually

increasing at a much more satisfactory rate than in the past.

Since the end of May 2014, lending rates for households and non-financial

firms have declined significantly. There is one thing I said in the

introductory statement which is very important: during the crisis we

observed widely differing lending rates by banks in different parts of the

euro area, but this difference has now shrunk and rates are very close

nowadays, as are growth rates, by the way.

One measure we often look at to determine the strength of the growth

process and expansion is how different the growth rates are in different parts

of the euro area. Well, the degree of difference now is something like we

had in 1995-1996. In other words, it is a historical low. All countries

nowadays are growing.

By the way, some Members questioned the effectiveness of our monetary

policy for SMEs but, in fact, the lending conditions for SMEs have

improved significantly across all sectors and countries. The gradual recovery

in loan growth is continuing. The recovery started about four years ago and

then really picked up, and it is continuing, though we are not seeing

anything like we had before the crisis. So growth rates in lending are good,

but nothing euphoric like we saw before the crisis.

One point that was made was that we are focused on buying southern

countries’ bonds. That is not true. We do not favour certain countries over

others in the implementation of our programme. Our purchases are guided

by the ECB’s capital key, which takes into account GDP and population. But

if one focuses on purchases at specific points in time, for example on 2017

only, this is bound to yield wrong interpretations. The overall stock of euro

system holdings is the relevant metric for any assessment of the programme,

and not the recent purchase flows. So, in fact, if you look at the stock, you

will see that, as far as German bonds are concerned, we are above the capital

key for that country.

By and large, one should consider the design of the programme: it is flexible

and the distribution of actual purchases on any given day often deviates from

the ECB capital key. But just consider: this was in the original design of the

programme when we had countries like Greece, whose bonds we did not

purchase. Of course, then, we had to deviate from the capital key.

Some other observations concerned the side effects of our monetary policy. I

just wish to reiterate that our measures are proving effective but, at the same

time, we are aware of potential side effects and we have to differentiate

between the various ways in which they affect economic actors.

For example, for individual savers, an accommodative monetary policy

means that they accrue fewer nominal returns on their savings. However,

such a policy also supports economic expansion and this bolsters

employment, income, returns on investment and tax revenues. It therefore

benefits households in their capacity as workers, entrepreneurs, investors,

borrowers and taxpayers.

There is no one specific country that has benefited most from our monetary

policy. Everybody has benefited. Public sectors in all countries saved

billions on interest rate payments; private sectors across countries and

sectors saved billions on interest rate payments to banks; and purchasers of

houses could have access to mortgages with much lower interest rates than

at any time in the past. This has not only boosted the construction industry

but has also boosted investment for the purchase of houses.

So we see benefits accruing right across society and not specifically located

in one country. When the monetary policy is successful, both creditors and

borrowers benefit from it.

Similarly, let me continue now on savers. There are several channels through

which our policies affect pension and insurance schemes. Beyond the effect

on the liability side, it is important to see what happens on the asset side.

Our monetary policy has had a beneficial impact on this side of the equation,

as the value of the investment portfolio has increased. But, having said that,

I completely agree there is a need to put pension systems on a stable path

because the survival of any single country’s pension system cannot be

dependent only on the proper configuration of interest rates. It must be

actuarially sensible.

I have already addressed, in my introductory remarks, the issue of possible

asset bubbles currently being formed in the euro area. For the time being, we

have little indication that generalised financial imbalances are emerging.

There are no signs of general asset-price misalignments in the euro area but

some segments do need close monitoring and one of them is the prime

commercial real-estate market, where we actually see stretched valuations.

Also, in some large cities and in some countries real-estate prices have

increased at a faster pace than household incomes. This certainly requires

monitoring.

Finally, yields in the euro area corporate bond markets, especially for some

of the lower-rated issues, have started to look exceptionally low by historical

standards, but what are we going to do? Are we going to change monetary

policy because of these side effects which are not, by the way, systemic? No,

the answer is to enact macro-prudential policies which are the best tool for

tackling these challenges – also given their country-specific and sector-

specific remits. In late 2016, the European Systemic Risk Board (ESRB)

issued a set of country-specific warnings on medium-term vulnerability in

the EU residential real-estate sector.

Now a word about Brexit. We are not party to these negotiations but we are

certainly monitoring their evolution and, clearly, I agree that much depends

on these negotiations and possible arrangements. Of course we always

prepare for any eventuality and, at the same time, we are assessing the

direction, the probability and the potential impact of risk, but the bottom line

is that either this transition is well managed and there will not be substantial

risks, or it is not, and the risks will be there. We are certainly looking at that

and we have to be prepared for that.

Let me also add that, as far as our role as supervisors is concerned, our good

cooperation with the Bank of England is important in coping with the

potential risks, and especially the risks of any cliff-edge effects. Certainly,

transitional arrangements along the lines of the December European Council

guidelines could be useful to smooth out the Brexit process but, as we all

know, the materialisation of the transition period is still exposed to political

uncertainty, and that will remain for some time to come.

On financial supervision, I welcome the review of the European system of

financial supervision, including changes to the European supervisory

authorities. Some of your comments touched upon the issue of transparency.

Here, let me reiterate that we are in complete agreement about the

importance of ECB transparency vis-à-vis the European public. We have

continuously assessed where we need to further strengthen our transparency

framework, and we have demonstrated our commitment, improving our

framework as necessary.

Just briefly, let me list a few of the actions we have taken. The accounts of

Governing Council discussions are now published four weeks after each

monetary policymaking meeting. There was none of that a few years ago.

Since 2015, the Executive Board members, as well as the Chair of the

Supervisory Board, publish their diaries covering professional meetings with

external parties. None of that was in place until a few years ago. And in

2016 we decided to disclose the agreement on net financial assets (ANFA).

Last year we also published the text of the emergency liquidity assistance

agreement. We have announced transparency in relation to our purchase

programme, especially transparency on the corporate sector purchase

programme.

Some of you made reference to the European Ombudsman’s

recommendations on the interaction of members of the ECB decision-

making bodies, including myself, with the Group of 30 (G30). We have

certainly taken note of the Ombudsman’s letter and we will respond in time,

but let us remember that the European Ombudsman has already concluded

that the ECB must conduct dialogue with market participants and that there

is no evidence that the G30 meeting could have directly influenced, or have

had an adverse impact on, the ECB’s supervisory tasks. The Ombudsman

has also confirmed that the ECB has a robust system of safeguards in place

to manage its contacts with the financial sector.

Again on transparency, we publish on our website extensive documentation

on all these interactions with markets. We disclose agendas and summaries

of the discussions, so I can assure you that the ECB is, and remains,

committed to reviewing, adjusting and updating our transparency

framework.

One or two speakers touched on Bitcoin and other cryptocurrencies. Let me

first say that we are not observing a systemically relevant holding of digital

currencies by supervised institutions – by banks, in other words. Actually,

the credit institutions established in the European Union are showing a

limited appetite for digital currencies like Bitcoin, notwithstanding the high

level of public interest. However, recent developments, such as the listing of

Bitcoin futures contracts by US exchanges, could lead European banks too

to hold positions in Bitcoin, and therefore we will certainly look at that.

However, we should understand that Bitcoin and other digital currencies are

in the unregulated space and should be regarded as very risky assets. Virtual

currencies are subject to high volatility and their prices are entirely

speculative. Banks should measure the risk of any holdings of digital

currencies in their portfolio accordingly. Right now, digital currencies are

not subject to a specific supervisory approach. Work is under way in the

Single Supervisory Mechanism to identify potential prudential risks that

these digital assets could pose to supervised institutions.

There were some other specific points. We are going to consider the

possibility of having a Charlemagne commemorative coin. On monetary

financing in Hungary, we will assess the existence of monetary financing in

our report. As you know, the ECB is accountable to the European

Parliament, but members of its Executive Board, myself included, have

accepted invitations to discuss our monetary policy generally and broadly in

national parliaments, so I would be glad to accept an invitation from the

Irish Parliament if I were to receive it.

I think I have gone through most of your questions. Thank you.